Profit margin and markup answer two different pricing questions. Margin shows how much of the selling price remains as profit after the item cost, while markup shows how much profit was added on top of that cost. Because the percentages use different denominators, a 25% markup is not the same as a 25% profit margin.
How it works
Enter the cost of the product or service and its selling price. The calculator subtracts cost from selling price to obtain profit, then calculates margin as a percentage of the selling price and markup as a percentage of cost. Comparing both percentages helps when setting prices, reviewing supplier costs, or checking whether a sale still meets a target profitability level.
The formula
Cost is the amount spent to obtain or provide one unit. Selling price is what the customer pays. Profit is the difference between selling price and cost. Margin measures profit relative to revenue, whereas markup measures profit relative to cost. They should therefore not be used interchangeably.
Worked example
If an item costs 80 and sells for 100, profit is 20. The profit margin is 20 ÷ 100 × 100 = 20%, while markup is 20 ÷ 80 × 100 = 25%. The same transaction therefore has a 20% margin and a 25% markup.
Use a cost figure that matches the decision you are evaluating. If shipping, commissions, packaging or other variable expenses are economically part of each unit, include them in the cost before interpreting the result.
Frequently asked questions
Why are margin and markup different?
They divide the same profit by different numbers. Margin divides profit by selling price, while markup divides it by cost. Whenever cost and selling price differ, the two percentages will also differ.
Can profit margin be negative?
Yes. If the selling price is below cost, profit is negative and so is the margin. That indicates the unit is being sold at a loss before considering any additional expenses that are not included in the entered cost.
Does this calculate net business profit margin?
No. This calculator compares a direct entered cost with a selling price. A company-level net margin also considers operating expenses, financing costs, taxes and other income or expenses.